Layoffs Sink Stock Prices, Says Study

Forget the Seven Percent Rule; workforce morale critical to value
By Dustin Lushing,  Newser Staff
Posted Apr 29, 2007 8:00 AM CDT
'   (Associated Press)
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(Newser) – Economists have long doubted the precept that cutting a company's payroll will lead to a spike in its stock price. But try telling that to CEOs, who are still trying to emulate the turnarounds achieved by G.E. and Proctor & Gamble. Now, a study reveals that markets actually have "a significantly negative" reaction to downsizing.

The essential problem, argues James Surowiecki in the New Yorker, is that workers are being measured in payroll cuts instead of the value they create. Firings that misfired at Citigroup and Circuit City should prove the value of a stable workforce, but CEOs desperate to please investors remain myopic when it comes to trading jobs for points.